Sales and Use Tax Annotations

Annotation 195.1530

(b) RETURNABLE CONTAINERS

195.1530Leases of Returnable Containers. A lease of tangible personal property is regarded as one sale for the term of the lease. Where a lease is renewed, or if another lease is entered into, these leases are regarded as separate sales.

Thus, when a lease is of new returnable containers on which the rental receipts are subject to tax, the subsequent renewal of such a lease is a sale of returnable containers resold for refilling and therefore exempt from tax pursuant to Regulation 1589(b)(1)(B). For the lease of new returnable containers, tax applies to the total lease payments received under the terms of the lease and not only to that portion of the lease receipts which relate to the first filling of the new container.

When short term leases are renewed for new leases for longer periods, the tax application on the renewal would depend upon the circumstances surrounding the execution of the lease and the business reasons therefor. A resultant tax liability would depend upon the facts in each case. Thus, if a lessor entered into lease contracts of new returnable containers leased in a different form than acquired for three month periods and then renewed or re-leased the containers to the same parties for five-year periods, these transactions would be considered to be shams and tax would be asserted on the rental receipts received during all or substantially all of both periods. On the other hand, if the lessor entered into lease contracts of the new returnable containers for five-year periods, and then renewed or re-leased the containers, tax would be asserted on the rental receipts received during the initial period only. 3/28/69.

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